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PROPERTY: Singapore Housing Loan Rules and Regulations

By Stella Thng

We’ve lost count of the number of rounds of cooling measures the Government has unleashed on the property market to curb spiralling prices. The latest is the revised debt servicing framework announced by the Monetary Authority of Singapore (MAS) in June 2013. This basically imposes stricter rules on borrowers seeking a bank loan to fund their real-estate purchases.

One key new regulation states that the borrower’s monthly debt repayment should not exceed 60 per cent of his or her monthly gross income (see box story on opposite page). This is in reaction to the growing household debt in Singapore, which MAS managing director Ravi Menon recently described as “worrying”. Already, global credit rating agency Moody has downgraded its outlook on Singapore’s main banks from “stable” to “negative” due to the rapid loan growth and rising real estate prices.

For Mark Shen, 36, the new MAS regulations have dented his upgrading plans. He lives with his wife Annie and two daughters in a resale HDB flat. “We’d planned to buy a three-bedroom condo by taking the maximum bank loan and stretching it over the longest period we can. But with these new measures, the loan quantum we now qualify for can probably only get us a two-bedroom unit,” says Mark.

Meanwhile, investor Tan SL, who has two properties in Singapore, has had to review her plans. To avoid paying the Additional Buyers’ Stamp Duty of 10 per cent for a third local property, she plans to buy an apartment in Australia instead. “However, to enjoy the relatively lower interest rates that local banks offer – about 3.5 per cent compared to Australian banks’ 5.3 per cent, I’d need to observe the new TDSR framework in Singapore,” she says.

These are just some examples of how the new rules will affect local buyers, sellers and investors of local and foreign properties. Patricia Hung, co-founder of popular website Housingloan.sg, offers her expert take.

HOW HAS THE TOTAL DEBT SERVICING RATIO (TDSR) FRAMEWORK AFFECTED PROPERTY LOAN APPLICATIONS AND APPROVAL?
The TDSR is mainly aimed at encouraging financial prudence among borrowers and ensuring consistent lending practices among the banks. Banks are now more stringent in their credit checking and assessment when granting property loans. When they apply for a loan, borrowers will need to provide more documents as well as complete more paperwork. The approval process will also take a longer time.

HOW HAS IT AFFECTED SELLERS, BUYERS AND UPGRADERS?
Property sellers may face dampened demand as a section of potential buyers, especially those with income in the form of commission and those with multiple loans, would need to recalculate their sums, now that the loan quantum they can qualify for is lower. They may decide to go for a smaller, more affordable unit.

Property sellers may expect potential buyers diverting to more affordable property within their borrowing means. For upgraders, their main concern is the loan amount they are able to secure for their next property.

However, for HDB upgraders getting another HDB flat or HDB executive condominium, the monthly payment under the existing property can be excluded from the debt-servicing calculation. This is provided the existing property is undergoing the sale process, and the borrowers don’t own any other property (including joint ownership with others) or have any other property loans to their name.

WHAT ABOUT INVESTORS OF FOREIGN PROPERTIES WHO WANT TO SECURE A BANK LOAN?
They may consider taking a loan from a Singapore bank or a foreign bank based in the country of the purchase. For those seeking a loan from a Singapore bank, the new measures will also apply to you. For those taking the loan from a foreign bank, although the interest rates may be slightly higher, you will probably have rental income that can be used to offset the loan instalment, which could help mitigate exchange rate fluctuations.

The monthly payments of the overseas loan will still need to be consolidated as part of the total debt obligations in the debt servicing calculation, should you decide to take a loan to buy a property in Singapore in future.

HOW WILL THIS AFFECT INTEREST RATES IN THE FUTURE?
Interest rates will remain low even though an increase is expected when it is certain that the American economy is on the road to recovery. As it is, some banks have upped their housing loan rates by 0.1 per cent lately. Despite the increase, the overall rates are still low. This will remain as long as the rise in interest rates is gradual over the next one to two years, bearing any unforeseen circumstances. In view of the expected rise in interest rates, borrowers may want to lock in the lower rate now, for example, in the form of a fixed rate for the next three years or at the current rates pegged to the Singapore Interbank Offered Rate (SIBOR).

More home buyers are going for fixed rates. Currently, the longest fixed rate package available in the market is up to five years. Banks in Singapore do not offer fixed rates throughout the loan tenure. The longest fixed rate we have seen is for up to 10 years.

Given the more stringent lending policies on property, it may be wise to maximise the loan if you qualify, given that housing loan rate is the lowest compared to car loans and renovation loans. However, do budget for any increase in interest rates and ensure there is excess cash flow or sufficient funds should it happen. No one can predict interest rate movements, so choose a housing loan package that best suits your requirements and needs.

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